Top 10 FX Trades
USD has entered its last leg within a secular bull market. We expect USD to be driven by widening rate and investment return differentials. USD strength should be front-loaded against low-yielding currencies, particularly JPY and KRW. Later
in the cycle we see USD strength broadening out with the help of rising US real rates, specifically hitting high-yielding currencies. Higher real rates should eventually tighten financial conditions, increasing the headwinds for the US economy and marking the turning point for USD after 1Q18.
1) Long USD/JPY
Yield differentials driving outflows from Japan and higher inflation expectations.
2) Long USD/KRW
Diverging growth and monetary policy to increase outflows from Korea.
3) Short EUR/GBP
No new negative UK news allows the undervalued GBP to recover.
4) Long USD/NOK
Norway government's slower fiscal support to make long NOK positions adjust.
5) Short AUD/CAD
Reflects the diverging US-China economic growth stories.
6) Short SGD/INR
Relative external sector dependence, China exposure and debt overhangs.
7) Long USD/CNH
RMB weakens from capital outflows and diverging monetary policy from the US.
8) Long BRL/COP
We expect reform momentum and high yields to cushion external risks
9) Long RUB/ZAR
Continued tight monetary policy should help RUB outperform
10) Long CHF/JPY
Yield differentials weaken JPY, while CHF is a good eurozone political risk hedge.